In view of the complex political situation in the country and the parliamentary elections in October 2024, the budget year 2025 has started in the absence of an adopted by the National Assembly State Budget of the Republic of Bulgaria Act for 2025 (the “2025 State Budget Act”). However, on 24.02.2025, the Council of Ministers submitted to the National Assembly the draft 2025 State Budget Act and the Updated Medium Term Budget Estimates (“MTBE”) for the period 2025-2028, which basically represents  the “grounding” behind the draft 2025 State Budget Act. Some of the measures envisaged will likely have a direct impact on individuals and businesses (see below). In addition, the checks and balances envisaged in Budget 2025 are of utmost importance in the context of the country’s bid to join the Eurozone as of 1st January 2026.

In the period 2025-2028, it is foreseen the tax policy to be oriented towards achieving macroeconomic and budgetary stability in the medium and long term and providing the necessary financial resources for the implementation of the government’s expenditure policies. In this context and with a view to raising revenue for the State budget, a number of measures in the tax legislation have been proposed via the draft 2025 State Budget Act.

In general terms, these measures consist of:

·         Increasing the excise duty rates on all tobacco products by adopting a new excise duty calendar;

·         Reducing the national VAT registration threshold from BGN 166 000 to BGN 100 000 as of 01.04.2025;

·         Taking measures to reduce the share of the grey economy, to combat tax fraud, tax evasion and tax avoidance, including the implementation of SAF-T (an international standard for the electronic exchange of data between taxpayers and tax authorities);

·         Improving legislation related to transfer pricing and related party transactions;

·         Extending the definition of “labour relationship” to achieve greater tax transparency on income and tax and social security contributions due;

·         Compulsory electronic invoicing by all persons registered under the VAT Act making specific supplies.

With respect to social and health insurance contributions, the amount of the social security contribution for the Pension Fund of the State Social Insurance Institute (“SSSI”) for 2025-2026 shall be maintained at the 2024 level, while also maintaining the amounts of the insurance contributions for the other SSSI funds and the ratios between the insurers and the insured persons. However, increases in the contribution to the Pension Fund are foreseen for the end of the forecast period, namely by 1% as of 01.01.2027 and by 2% as of 01.01.2028.

Another important amendment provided for by the draft 2025 State Budget Act, which concerns the insurers (employers), is related to the increase of the minimum and maximum social security income thresholds, starting from 01.04.2025. The minimum social security income is increased to BGN 1 077 and the maximum – in stages over the entire forecast period to: BGN 4 130 in 2025, BGN 4 430 in 2026, BGN 4 730 in 2027 and BGN 5 030 in 2028.

The draft 2025 State Budget Act envisages a deficit in the budget balance under the so-called Consolidated Fiscal Programme (“CFP”), containing all public expenditure for a given period, for each year of the 4-year forecast period 2025-2028. The budget deficit is expected to range from 2.2% to 3.0% of the gross domestic product (“GDP”) with a downward trend, where, of course, these are only predictive values. The projections are based on the implementation of certain expenditure policies for 2025 and 2026, as a result of which the deficit should decrease to 2.7% and 2.2% of the GDP at the end of the projection period, namely – 2027 and 2028. By comparison, the CFP budget balance for 2024 was negative and amounted to 3.0% of the projected GDP.

In the medium term, a sustained nominal growth of revenues, including tax and social security revenues, is foreseen. On the other hand, CFP aggregate expenditure is expected to exceed the 40% of the GDP threshold set in Article 28 of the Public Finance Act, and is projected to range between 41-44% of the GDP over the 4-year period.

With regard to the state debt, the draft 2025 State Budget Act provides for the possibility of incurring state debt under the State Debt Act in the maximum amount of BGN 18.9 billion in 2025, which will serve to provide the necessary funds to refinance the outstanding debt, to finance the planned deficits under the state budget and to secure the liquidity position of the fiscal reserve.

Based on the assumptions for a new debt financing for the period 2026-2028, the latter is projected to reach the following nominal amounts for each year of the period: BGN 13.3 billion for 2026, BGN 12.4 billion for 2027 and BGN 10.9 billion for 2028. On the basis of these assumptions, a significant rate of increase in government debt is projected over the period 2026-2028, reaching respectively BGN 72.4 billion or 31.9% of GDP in 2026, BGN 81.5 billion or 34.3% of GDP in 2027 and BGN 88.9 billion or 36.0% of GDP in 2028.

The minimum size of the fiscal reserve is envisaged to remain unchanged compared to the amount of BGN 4.5 billion set in the 2024 State Budget Act.

The project for the 2025 State Budget Act is to be adopted by the National Assembly, and it should be noted that § 34 of its Transitional and Final Provisions provides for its entry into force, with the exception of certain provisions, retroactively, i.e. as of 01.01.2025.